This is a rush transcript from "Hannity," October 19, 2010. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: Two weeks are all that remains before Election Day 2010, and with key races slipping away from the Democrats the party is getting desperate and candidates are stooping to new lows in order to retain the majority.

At the moment, the nastiest race of all in America appears be in the Senate battle in the great state of Kentucky. In a moment, Republican Rand Paul will join me. But first, let's review how this race has spiraled into the gutter. Now things turned really ugly after Democrat Jack Conway launched a malicious attack ad questioning Republican Rand Paul's religious beliefs.

Now the controversial ad was based on anonymous quotes from a GQ magazine article, and it was a hot topic at a weekend debate between the two candidates.

(BEGIN VIDEO CLIP)

SENATE CANDIDATE JACK CONWAY, D-KY.: When is it ever a good idea -- a good idea to tie up a woman and ask for her to kneel before a false idol, your god that you call Aqua Buddha?

SENATE CANDIDATE RAND PAUL, R-KY.: Jack, you know how we tell when you're lying? It's when your lips are moving, OK? You're accusing me of crimes. You just -- do you know nothing about the process? You're going to stand there and accuse me of a crime for 30 years ago from some anonymous source? How ridiculous are you?

(END OF VIDEO CLIP)

HANNITY: Now in addition to confronting Conway at the debate Paul has released an ad of his own. Let's take a look.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Now Jack Conway is attacking Rand Paul's faith.

Rand Paul keeps Christ in his heart and in the life he shares with his wife and three boys. Don't be fooled by Conway's desperate attack. It's shameless, disgraceful, gutter politics at its worst.

What kind of shameful politician would sink this low to bear false witness against another man just to win an election? This one would, Jack Conway.

(END OF VIDEO CLIP)

HANNITY: Now we have invited Mr. Conway to appear on this program and are awaiting a response from his campaign. But his opponent Republican Senate candidate from Kentucky, Rand Paul, joins us once again.

Dr. Paul, welcome back. Thanks for being with us.

PAUL: Good to be with you, Sean.

HANNITY: All right. Well, I guess the first question is, did you ever tie any women up and have them kneel before their god -- what is it, Aqua Buddha? Did you ever do that?

PAUL: How do you even respond to something so ridiculous?

HANNITY: Well -- I have to ask the question, it's my job.

PAUL: Here is my response in the debate. My response in the debate was when someone says when did you quit beating your wife, how do you respond? I mean and how do you respond to things like hearsay and gossip from 30 years ago?

You know there was a time when hearsay and gossip was used to condemn men. It was 12th century Venice. I mean for goodness sakes, are we still in Medieval Times?

HANNITY: Well, I mean, and the whole idea of -- I can imagine -- maybe beyond a college prank of some kind -- that, you know, any college student, you or anybody else, tying up anybody and having them kneel before Aqua Buddha. I know --

PAUL: The thing is -- the thing is, look, I'm a pro-life Christian. I've never written or said anything to indicate otherwise. I got up in my church when I was 17 and talked about how we weren't doing enough to stop abortion in my church.

For them to say that I'm not a Christian is just really an unfair attack. And to say all of these accusations are from anonymous sources. I mean it really is strange that we live in a world, a medieval type of world, where someone can accuse you -- through gossip and hearsay, and all of a sudden you're supposed to respond to specific charges from people you don't know, are not aware of who these people are, and you're supposed to respond to their specific allegations?

I think really we've stooped to a new low in America.

HANNITY: Yes, I would agree. But we've seen a lot of these. We've seen a lot of these ads that have come out and charges. Meg Whitman being one of them out in California.

I guess the question is, is the Conway campaign now in a desperate search to find the anonymous person in the GQ article?

PAUL: Well, the interesting thing is, is that we're now finding Democrats in our state condemning the ad. Congressman Yarmouth in Louisville is a Democrat and he's now condemned the ad. Claire McCaskill said it was a dangerous ad and crosses the line.

So I think really even many of his allies are seeing that he's crossed the line here and that really this may end up being the end of his campaign, because I really think that people in our state when they see someone who viciously attacks another man's faith and says that I'm not a Christian, really, does that have any place in civil discourse?

HANNITY: No, I would agree. And I think you were very clear in the debate. Have you no decency? Have you no shame? That this is a disgrace. That you've descended into the gutter. What profit a man to gain the world and lose your soul in the process?

You made a decision that during that debate you said, at the end of this debate I will not be shaking my opponent's hand. You stand by that decision? And have you thought about the upcoming debate you are now contemplating not going?

PAUL: Well, I think a handshake is something that honorable men do. Before we had contracts we had handshakes that expressed that we were making an arrangement that was based on our honor.

And I don't think I can shake the hand of someone who shows and lacks honor by attacking a man's faith.

And really, I really think that I can't imagine that I can shake his hand. I'm not sure if I can appear on the same stage as him. But I think the voters of Kentucky do deserve to learn about the issues.

And it is a program that I've been on before and I know the moderator to be an honest man and a fair man. And so it's a tough decision.

HANNITY: So you haven't decided yet?

PAUL: We are still thinking about it. It really -- you know it saddens my wife and my kids. My wife is a deacon in our local church. We've been going there since we came to Kentucky. And people at church come up to us and are saddened by the fact that people are condemning my religion, people who know me.

But can you ever know a man well enough to condemn his religion? I mean I've met you a couple of times but I could never say anything about your religion, one way or another. And it's like I would never think it was in my place to condemn or talk about your religion.

HANNITY: Especially if he's reaching back 30 years, using an anonymous source to get there. I mean I think it's fairly transparent to any objective person that this is an act of desperation on his part.

And we'll watch, you know, and see which way you decide to go on this whole thing. But I think it is reflective of the times that we live in. I mean the president has used some pretty incendiary language in recent weeks as well, trying to suggest that Republicans want to suppress the voting blocs in this election, and certain demographics and certain groups of people.

So this is really coming from the top. They've attacked Fox News, talk radio, they've attacked Karl Rove, and Ed Gillespie, and even the Chamber of Commerce.

I assume it's going to get worse before it gets better. Your thoughts?

PAUL: Well, I think the attacks are because they don't want to talk about Obamacare, they don't want to talk about the largest tax increase in our history that's coming. They don't want to talk about cap-and-trade which will be a big energy tax and will really demolish jobs in Kentucky.

See, because my opponent is on the wrong side of all these issues, he knows he can't win on the issues so he's got to attack me, my religion and my family. And I think it really is disappointing. But I think there's a lot of people out there, in fact, I think a lot of independent voters see this, know the candidate, they don't like attacks from either side. But when a guy gets so vicious like this, I think it may backfire on him.

HANNITY: Governor Palin was on the campaign stop and she actually said that -- was asked the question if she thought the Republican establishment and the Tea Party Movement are going to work hand-in-hand and move an agenda forward. And she said well, if they don't, then the Republican Party would risk its status as a second tier party, or an alternative party, and the Tea Party movement could emerge as an alternative.

Do you agree with that assessment?

PAUL: I think the Tea Party is shaping the debate right now. The Tea Party candidates won many of the primaries. And I think we are shaping the national debate and that's good.

But I also see that the Republican caucus and the Republican Party seems to be coming in our direction. And I really like what I hear about, you know, opposing more bailouts, opposing the stimulus packages and really people who will stand up.

One of the things that was particularly galling to me recently was, you know, we found out that 77,000 dead people received stimulus checks? Seventeen thousand people in jail received stimulus checks?

Those things are just appalling. And I think that's really what gets the electorate up and I think will help turn our people out to say, for goodness sakes, we need some people in government.

HANNITY: All right, Rand Paul, appreciate you taking time for being with us. And thanks very much. And we'll be watching closely to see what happens on the debate front. Thank you.

PAUL: Thank you.

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